Paul Volcker Slams The Fed: "The Kind Of Stuff That You’re Being Taught At Princeton Disturbs Me"

There is a reason that of all Fed Chairmen since the Fed lost its independence at the Fed-Treasury accord on March 3, 1951 (contrary to the widely, and erroneously, accepted conventional wisdom that the accord gave the Fed its freedom as we explained two years ago), Paul Volcker is by far our favorite (and yes, this is most certainly picking the least of countless bubble-inflating evils).

One such reason is that he still gives interview such as the following with the Daily Princetonian (he himself is a Princeton grad, class of 1949), in which he tells the unabashed truth "The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me." Aka common sense 101, sadly precisely the one commodity that the Federal Reserve in its scramble to delay the moment of total collapse is unable to print.

We wonder what that other infamous Princeton graduate, Ben Bernanke, would have to say about Volcker's statement at one of his $250,000/plate dinners with the people he made from millionaires into billionaires.

The Daily Princetonian spoke to former chairman of the Federal Reserve Paul Volcker ’49 following a panel discussion in which he participated, titled “Are financial institutions too big or too big to fail?” At the panel, Volcker criticized universities like Princeton for allegedly teaching students how to cheat the financial system. Here is the interview.

The Daily Princetonian: Do you think the Federal Reserve went far enough in stabilizing the banking system?

PV: I’ll give you a simple answer. The responsibility of any central bank is price stability. I was at the helm at that time. Price stability is two percent inflation, which we can’t closely control anyway. They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation.

DP: And does high inflation matter as long as it’s expected?

PV: It sure does, if the market’s stable. And if it is expected, then everyone adjusts, and it doesn’t do you any good. The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me. Your teachers must be telling you that if you’ve got expected inflation, then everybody adjusts and then it’s OK. Is that what they’re telling you? Where did the question come from?

DP: Okay. Could you talk a little bit about the justification behind the Volcker Rule and the effect you think it’s had on the market?

PV: The rule is that institutions that are protected by the government, implicitly or explicitly, should not be engaged in speculative activities that bear no real relationship to the purposes for which banks are protected. Banks are protected to make loans, they’re protected to keep the payments system stable. They’re protected so you have a stable place to put your money. That’s why banks are protected. They’re not protected to engage in speculative activities which led to risk and jeopardized the banking system. That’s the basic philosophy. I think it’s pretty well-accepted.

DP: And do you think there’s still a lot of work to be done?

PV: Not that I know of. You have a regulation environment standing in. It’s a pretty tough regulation. Like every regulation, it’s dependent on the ability and willingness of the supervisor to enforce it. And they have all the power and authority they need, if they’re willing to do it.

DP: Okay. And to get back to the central banking a little bit, given the trade-off between inflation and unemployment –

PV: I don’t believe that. That’s my answer to that question. That is a scenario and a delusion, which economists have gotten Nobel Prizes twenty years ago to disprove.

DP: And as far as moral hazard goes, do you think that in practice banks are going to recklessly avoid taking into account risk?

PV: That depends upon the regulatory system. And that goes back to compensation structures and so forth. So, I do think that it is a danger when big banks that are perceived as too-big-to-fail are taking advantage of the banks that are small ones.

DP: What are the most important things left to be done or to think about?

PV: In the area of financial regulation?

DP: Yes.

PV: A lot’s been done. What needs to be done is to enforce it. This business of the resolution process [of resolving the affairs of insolvent banks in an orderly fashion], whether you’re talking about the FDIC or the Federal Reserve, there’s a lot of work being done, and it’s not complete, but then again, otherwise, we’ve got to reorganize the supervisory system. There are too many holes, too many overlaps, too many opportunities for regulatory capture from the affected industries. That should be reformed.

The Fed needs to be done away with. No discussion.
Having people like Volker voicing opposition to Fed's action is providing cover for Fed's legitimacy. A type of false flag operation, psych op.
Though Volker is not a Jew, he must be viewed with suspicion as well. He is part of system that needs to be destroyed. No discussion.

He was one of the key lobbyists for the US to default on its gold obligations and take gold out of the US monetary system:

"...The gold exodus continued and, to make matters worse, the U.S. began running a substantial trade deficit, a politically charged issue given that unemployment remained at 6 percent. Nixon had to act, but his advisers were split. Volcker, as well as Shultz, wanted to close the gold window. Burns was vehemently opposed. Severing the gold link would turn money into … paper. If the government no longer had to preserve the dollar’s value in metal, how could the Administration claim, with any credibility, to be countering inflation? ..."

Ron Paul said it best, even if its 'just' 2%, what gives them the moral authority to steal 2% from you?

If I ran around with a gun and demanded 2% of everything that person earns, wouldn't that be considered extortion?

I also wish they'd say what they mean by '2%'. Now that they including blow and hookers in GDP, what happens when you have an economic depression like in Greece and hookers come down in price! OMG deflation! we need to print more. hookers should be charing 50 EUR not 20 EUR.

2% Y-o-Y is 61% devaluation in just 25 years. I can't believe that Volcker is so stupid as to not see the devastingly complex derivative architecture required to keep prices within the realm of practical sanity which, failing, overbuilds a free-exchanging culture with an impenetrable, ever-changing labryrinth of institutionalized theft. Volcker understands physics enough to insert one leg into his pants at a time, so, he should understand the history and the physics of fiat currency.

And all the king's quantum processors and all the king's algos can't seem to put humpty back together again!

Truthfully, I've moved on to Fifth Avenue. Too many security cameras on Park Ave nowadays, and besides, once you've flashed a bunch of middle-aged German tourists ready to ascend the ESB for night session of picture taking, I mean, it's like being born again!

That's some fine mental masterbation you have there. Did I mention that the laws of Nature and physics really don't give a shit?

Allow me to "explain it like you are five". People who know the real value of their labor are simply tired of being compensated with paper fucking promises of increasing no value and are making alternative arrangements and alliances.

Once I, however technically inaccurate, began understanding "inflation" as erosion in purchasing power, things made a lot more sense.

It's not the Illuminnati or the Space Lizards or the Jesuits or the Judeans: it is, above all, the fiat money system....the bankers....

Pretty amazing how ignorant most Americans are of the sort of basics of how dollars are created. In a way, it is so simple, and so absurd, the mind of even relatively smart people has trouble grasping the scam...

"Born to a Jewish family in New Jersey in 1927, Volcker attended Princeton University, Harvard and the London School of Economics. In January of 2008, he endorsed Barack Obama's presidency bid and was his closest financial adviser."

History has shown that jews have been well known to change their names and "religion" to avoid persecution. He sure does have the male pattern baldness and career of one (Fed chairman).

It's worse than that. Per Richard Koo (who was at the NY Fed at the time), Volker was demanding that the TBTF extend ponzi into the Latin American debt crisis. That was the first leg in the bubble-burst-bubble rollercoaster currently in play. Scumbags like this should just shut the hell up.

His point is well made, and the academic fecal alchemy is disturbing, but this TAMF ( tall ass mafukka ) speaks with a forked tongue. Make no mistake about it. The idea that there is a noble central banker is located in some dimension unaccessible to anyone rooted in the lucidity of rational human thought.

Bank of France Governor Christian Noyer said the U.S. investigation into BNP Paribas SA (BNP)’s dealings with sanctioned nations may encourage companies to stop using dollars in international transactions.

“We could say that companies would have maximum interest to do the most possible transactions in other currencies,” Noyer, who is also a member of the European Central Bank’s Governing Council, said yesterday on BFM television. “Trade between China and Europe -- do it in euros, do it in renminbi, stop doing it in dollars. This is an affair that will leave marks.”

In fairness, he said it in French, which isn't a popular language in the US (or apparently Italy), but he obviously wasn't joking despite the leading question and pretending to be flippant. Noyer was tossed a softball and he slammed it all the way across the pond. Interesting that he mentioned CNY instead of taking the bait on EUR rising to battle king dollar...

Here's to hoping that Volcker will be around to help write the rules after the next collapse. He tried to do that after the 2008/2009 collapse, and even made it onto Team Obama for a short while -- then everything he said got watered down by the Wall Street puppets in DC to the point of being worthless. It's a bit like the WWII D-Day vets who won't be around to tell us that we ought not start WWIII.

But wait... with 0% inflation, asset prices won't rise faster than your income. So you wouldn't need a bank to borrow from, right? And why would you need credit? And what use would the Banker Slave Index (I think they call it Credit Rating) be?

Gotta disagree with PV. The responsiblilty of gov is to defend the rights of individuals. Also, to stay out of the banking business. 2% inflation is 2 percent theft and thieves in any guise are still thieves.

Obviously, it is a mystery to you as well. The change began in the late 1800's. The movement towards serfdom has been deliberate and painstaking. Keynes was merely a fabian academic child molester with the wherewithal to fool other academics with his nonsensical rhetoric.

Economics started as an academic exercise in describing the vagaries of trade and exchange. Now it is "policy". This is another way of saying tyranny.

Economics requires no policy, just as money requires no legal tender. Just as laws are a means to slavery. People remark," we need good leaders", and I have to laugh. Why does anyone need a leader? Are you predisposed to imbecility? You NEED someone to tell you what to do?

We NEED food, shelter and clothing, preferably within a social network that allows for security and variety. Everything else is an opportunity to enslave us all.

From the moment any system conjures money from thin air (ie. fiat) without any backing and then allows it to proliferate and contaminate the system in volume through fractional reserve lending, speculation and manipulation, then it's just a matter of time before the free market starts to creak under the pressure twisted finance which seeks to suck more and more of the life of the productive segment of the market.

Volcker in my mind is not open and direct enough about the failure of supervision and regulation.

Those in control - The Powers That Be, are deep within their own groupthink and convinced they are right to do what they do. There will never, ever be an "Ah ha!" moment when they realise the error of their ways and change. The people who control them know exactly what they are doing. Us, passively reading blogs and commenting changes little if anything - maybe it ups the collective awareness of the problem. So, where and who is the rallying point ? surely we do not just wait for war and continue to comment on it, as is it unfolds..

If we had a political party who had a new JF Kennedy for president, a new Gandhi for secretary of state, Ron Paul twenty years ago as treasury secretary, and Russell Brand as secretary for education and culture I'd know who to vote/fight for. Unless this group of individuals exists and I don't know about it. Maybe finding these people and affiliating them should be the real project for a New American Century ..

All enlightenment movements occur through a change in collective awareness. By simply commenting on this "fringe" blog, you are helping the cause. The reason why it seems so futile is because the power and control is very centralized. But when that power and control gets compromised, you will be left on your own to survive because the .gov will be broken and broke.

Those that pay attention and prepare and are collectively aware, will come out the other side with a chance.

"There will never, ever be an "Ah ha!" moment when they realise the error of their ways and change."

They bloody do well know it! It's a SCAM! That is how they "make their living." Anyone who thinks that they're going to give up this gig (by "coming clean/becoming aware of the 'errors of their ways'") is delusional.

This is ALL about the exponential function. Has NOTHING to do with this system or that system (or this ideology or that ideology): as long as the mantra is perpetual growth on a finite planet NO system or ideology is going to keep from slamming into the wall.

"If we had a political party" Quit looking for salvation, it doesn't exist! BE THE CHANGE YOURSELF: start by understanding what the REAL problem is (start by watching Dr. Albert Bartlett's video Arithmetic, Population and Energy).

More and more we'll be informed that 2%-ish is the "new normal" for growth. I have no idea whether they're taking in their (closet) 2% inflation or not: which would leave only 0.1% actual growth (2.1% touted GDP growth minus 2% inflation).

The Dollar retained roughly the same purchasing power from the Early 1800's until the early 1900's...there were periord of extreme inflation around war-time and outher events, however AFTER those events deflation cause the price of good to fall back to the mean price.

It is UNATURAL and eventually destructive to have ANY level of constant inflation, be it 1%, or 2%, or whatever be accepted as "OK".

Do the math on an excel sheet and you will see the end result.

1913 to 1970 was leg-1, roughly a devaluation of 50%...1970 t0 2014 - Its almost 90% more.

We are now at 98% devaluation since 1913...at what they say is "Acceptable"

Not sure if you were responding to my post or not... Yes, ANY growth that is pushed to be perpetual WILL end up in collapse. This basic mathematical calculus applies to "economic growth" just as readily as it does to inflation.

+1 to PV for this: DP: Okay. And to get back to the central banking a little bit, given the trade-off between inflation and unemployment –

PV: I don’t believe that. That’s my answer to that question. That is a scenario and a delusion, which economists have gotten Nobel Prizes twenty years ago to disprove.

Bash central banking and everything evil that goes with it, but, its the economic bullshit that Paul Volker calls out that we ought to at least give him some credit for.

Everying clamoring for an expectation of at least a 60% retracement in markets. You're not going to get that with Yellen, but, you might with Volker. But as somebody said earlier, the destruction began in 1971, and it was Paul who reigned in the extent of the damage. Lets not piss on the only FED chair who actually gave a shit.

The responsibility of the government, in a free society, is to protect the rights of individuals. Period.

NOT included in this is any manner of control over money other than as provided for in the Constitution.

"The responsibility of any central bank is price stability. I was at the helm at that time. Price stability is two percent inflation, which we can’t closely control anyway. They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation."

You kidding me? Inflation is what central banks DO! Their entire reason for being. Inflation IS increasing the fiat money supply. Price stability. Hah! That's a euphemism for "we hope prices remain relatively constant over the decades as we inflate because we hope the good 'ole American people will keep on producing enough to offset the otherwise rising prices that result from our inflation, and not notice by the way that we are robbing them blind by STEALING THEIR PURCHASING POWER through ever decreasing-in-value paper dollars.

Price stability is a con: In a truly free, capitalist society, without the reserve currency system, prices would trend DOWN over time, not remain "stable." And the purchasing power of your AU-AG-backed dollars would tend to INCREASE with time, NOT erode. IT'S A CON through and through.

Follow the money: Inflation allows policy makers to keep up deficit spending for wars, the intractable poor, the sick, the immigrants, the college student, and the first-time homebuyers, to the ultimate benefit of them who make the money: the owners of banks.

The responsibility of the government, in a free society, is to protect the rights of individuals. Period. Meaning to ensure men are left free to be productive and trade among others voluntarily to mutual benefit, which of course, requires an honest money, meaning a sound money. Thus the constitutional restricition on coinage of money.

The Fed is a scam. Anyone who participates in it is a scam artist, a con man. Please do not make apologies for Mr. Volker.

"In a truly free, capitalist society, without the reserve currency system, prices would trend DOWN over time,"

Resource scarcity will, over the long-run, push UP prices. Caveat: at some point, for some things, the prices will then totally collapse due to complete loss of interest [resoruces are too scarce for a population to seek to pursue]).

the only interesting questions
---about nixon going off the gold standard and renegging on the mcarthur agreement
---and how this might comport with what he meant when he said the u.s. and world need a new 'mcarthur' agreement when in fact the u.s. broke the old one

what did he mean when he said this? and does chinese russian and indian gold hoarding effect what he meant?

. also, any questions about commodity manipulation could have been meaningful.

instead they asked him, are banks too 'big to fail'. princetonites are fucking morons begging to get rewarded jobs by oligarchs.

The policy must fit the preceived state of affairs. The excuse for 2% is to avoid deflation which all know is impossible to deal with, whomever you are. But it says nothing about the way the pie is cut socially. Oh yes, if you are poor or retired you might have a hard time buying what you need at 2% inflation for very long. The upshot if that is you want the fed to hold the value of the currency relatively stable you have to control loans given the rates applicable. Banks know that so they submit to FDIC or Fed fixing the cost of money and the loan rules they will do ok, not well, but ok. It is rare that we get to discuss such things so we have no dialogue on policy, all we want is to get by, you know, just get by. Nothing new here. In the end we have a bust about every 20-30 years. Just wait. Where is Andrew Jackson these days??

How about my theory for New Keynesianism? (sic) All central bankers should read this and ignore Volcker:

If some particular thing gets too expensive on an open market, instead of limiting the money supply, how about we print MOAR money and then tell people they can write the purchase,interest and depreciation of that particular thing off their income taxes. Repeat for as many things that get expensive.

I am sure it is a good plan in the long term. It wont create a throw away society ... (people and things) ... I don't think. But it will create a tax enforcement industry that will do great things like create important jobs, and cure cancer.

Stability does not fucking mean 2% per year. In fact 2% per year is fucking Doubling of prices not every 50 years, but every 35 years. Meaning Volcker is saying prices are "Stable" when we have to pay $20 for something today, that cost $10 just 35 years ago. Or for some of those who dont get it, He is saying that "Stable" means paying $12 TODAY for something that only cost $10 in 2004 is "Stable"

Thats NOT FUCKING STABLE JACKASS. 2% is a Scam, a fraud, and quite frankly, that low-life piece of bagshit claiming he doesnt understand What Princton is teaching NOW obviously doesnt see that whether is 1% or 4% or 10%, that ANY form of Constant "inflation" is by its very function UNSTABLE.

Well documented Volker smokes Garcia Vegas. If you by those by the box they are around a buck each. BTW, I was born in 1959, so I know the 70's and 80's quite well. If you think the world and US finances were more screwed up then, than now, I'm not sure I agree.

Sorry...I was a tad bit "animated" earlier...it happens when I start reading something that on the Onset Appears to be forthright and honest, and then the epitome hots me with "Wait...what did he just say...Did he just contradict homself" and then I go ballistic.

The Dollar retained roughly the same purchasing power from the Early 1800's until the early 1900's...there were periords of extreme inflation around war-time and other events, however AFTER those events deflation cause the price of goods fell back to the mean price.

It is UNATURAL and eventually destructive to have ANY level of constant inflation, be it 1%, or 2%, or whatever be accepted as "OK".

Do the math on an excel sheet and you will see the end result.

1913 to 1970 was leg-1, roughly a devaluation of 50%...1970 t0 2014 - Its almost 90% more.

We are now at 95-98% devaluation since 1913...at what they say is "Acceptable"

Yes America, we now pay roughly $95 today for what could be bought in 1913 for...wait...$1 Stability at its finest...keeping only the 2% going and over 100 yrs its only a devaluation of 75%...thow in a few years at 3, and 4%, and voila, in a mear 100 years you get to pay $95 for what used to cost $1.

and the fools LAP this shit up like its candy. Only problem is today...We dont get to buy US Treasuries earning 5, 6, 10, 15% like our parents did...theyve got everyone by the Nuts, and we think 2% is OK!

The very structure of the Federal Reserve is an insult to the entire country. The board of directors of the Fed is composed of top executives from the "too-big-to-fail" banks.

When the Federal Reserve says it's loaning money to banks, it simply means that the banks are loaning our money to themselves at almost 0% interest. The banks then say they're afraid to loan this money to consumers and choose to deposit the money with the Fed in exchange for interest payments.

The translation is that the big banks are making us pay them interest on loans they took from us. That would be like my taking out an auto loan and demanding monthly interest payments from the auto loan company.

The ignorant majority always proposes democracy, and upon failing chooses another prophet as scapegoat, to repeat the cycle. The beauty of peer pressure is that it is nearly always 180 degrees dead wrong, but never stops trying to confirm itself.

Artificial healthcare is now consuming Social Security. Taxation is about providing for a willfully ignorant majority, much like parenting, and most avoid responsibility, especially for others with the same embedded habits, preferring to compete for increasingly scarce resources. Government simply fills the void, as a collector.

You are at peak artificial scarcity bull-. That gal walking 10 miles a day recycling is more important than a CEO clear cutting, fracking and cashing in on green energy subsidies.

Don’t sell yourself short, by failing to put yourself to work. If you want to learn something about duration matching from critters in nature, and you do, set your distance from the human herd accordingly. Don’t expect to think clearly, to unfix the fix, while inside the something for nothing casino.

Doing something wrong, no mater how many times you repeat the mistake, doesn’t tell you how to do it correctly. You are a multi-dimensional printer. Why would you go backwards because some moron in an office, dependent upon extortion, projects a need, based on a biased perception of the past?

The debt algorithm is pretty simple: AB, ABC, ABCD, ABC, AB. B, C & D work for debt as income in the ponzi, on an interest gradient to provide A with asset control, until they all get flushed. In the very expression of your talent, you redefine assets, and the peer pressure hedge is overwhelmed at threshold. Labor recognizes labor, by discounting debt consistently.

Individual talent increases demand and supply. Forfeiting talent reduces it, which the majority artificially replaces until the planet responds. The planet has seen this show many times, turning over species after species. The distribution is not moved forward by confirming the ‘normalized’ distribution in a tax farm.

The old-timers know that they are caretakers, responsible for recognizing competent successors, not of their own. An economy cannot function without circulation. They are looking for a young couple that sees the world full of opportunities, building their skills together, to express their talents.

Optimally, you should be married, have a 24 hr/wk job supporting the majority at something like $15/hr, and be experimenting with a small business, but it’s never to late to start. The herd is always going the wrong way, increasing variability, booms and busts, with replication.

You are not going to learn anything useful in a positive feedback loop between the education complex and Homeland Security, fueled by debt. Start with one of the classic Ado compiler books, learn how to implement physics with V = IR, isolate switches with PV = T, and install quantum switches with nR compilation. Constants are relative to the system.

If you need office skills, examine everything that goes into and comes out of a FedEx/Kinkos. If you require legal skills, read the rules of court, hang out with appellate lawyers in a good law library, and watch the clerks manage caseloads for the judges. The court action is a derivative sh-show.

Productive cycling of natural resources for human use is shrinking toward zero, because the majority assumes that the world just needs better middlemen, building and consuming apps. Accordingly, the Internet has been twisted to breed extortion on a much larger scale, of, by and for a shrinking population, with declining skills and increasingly arbitrary behavior.

Facebook is a silly stupid company buying ideas with market debt, hoping that a blind squirrel will find a nut, cycling conspicuous consumption and advertising in the meantime. The best way to learn about circuits is to build them, minus the false assumptions at start up.

The Internet is being deployed to roll out global government, eliminating alpha, beta and portfolio tools. A bet on Uber is a bet on the path of taxi market extortion. RE is a bet on the value of variability created by extortion. Seems like just yesterday Twitter was a darling.

Return on investment is a function of time horizon, which favors singles in the short term, civil marriage in the medium term, and marriage in the long term. When the long term becomes the short term depends upon location cycle, which is why the global city prototype seeks to be forever young, short-sighted.

The idea that a person, much less a committee, can make investment decisions for others is certifiably insane, but that is central control. You are a natural resource, not the government middleman, and probability says that you as an individual are in a much better position to print. And you learn by doing.

You set your labor price with positioning, and the better you price duration over time, the more abundant your environment will be. Some people’s money is worth more than others. The cities practicing price and wage control are not concrete jungles of extortion strangling perimeters, with tourism branding as a substitute for life, by accident.

If you think about it, discounting debt is much more effective than issuing debt. Warren Buffet plays both sides, which is fine if you want to collect legacy industries on the margin like toys in a positive feedback loop, but not to build the future. He simply consolidates the middle.

Put your talent to work with skill development, and print your own future, for your children’s sake, in a positive feedback loop serving as the negative feedback loop to majority peer pressure. That J-O-B is a door, discounting your way to a home and a business. Don’t walk through doors that have inflation, something for nothing, on the other side.

Don’t assume that the old-timers didn’t see all this coming and didn’t leave the necessary parts. Recycle the Internet, bypassing all the digital extortion controllers feeding the middlemen, and you will see the labor market, for yourself.

Build your own clock, so you are not waiting in line, making gravity your friend instead of your enemy.

Where the **** does the Fed, or anyone for that matter, determine price "stability" means it growing by 2%? It seems to me stable means 0%. I guess I didn't have their professors though or go to an ivy league school.